Vermilion to hike capital spending at last
Economic even at sub-US$40 oil prices
• After years of belt tightening, international oil and gas producer Vermilion Energy Inc. is planning a modest increase in spending in 2017 amid confidence global oil markets are returning to balance.
The Calgary- based company with operations in Europe, Canada, Australia and the United States said Monday its board has approved a budget of $ 295 million for 2017, up from $ 240 million this year.
President and chief executive Anthony Marino said i nvestment still remains f ar below 2014 l evels of $ 688 million, when Vermilion had production of less than 50,000 barrels of oil equivalent a day. But with its higher- quality projects, lower costs and technical improvements, Vermilion is able to do more with less, he said. The company expects to produce up to 70,000 boe/d in 2017.
“The good- news story is that we have very low levels of cap ex for a much larger company and we are still growing,” Marino said in an interview after the company reported results for the third quarter.
Vermilion posted a loss of $ 14.5 million for the period, on sales of $ 232.7 million, down from a loss of $ 83.3 million on revenue of $ 245 million in the same period a year ago.
One of the first companies to announce spending plans for next year, Vermilion said the biggest spending i ncrease is directed at properties in Alberta and Saskatchewan, where its budget is set to rise 83 per cent in 2017, to $ 108 million, from $ 59 million in 2016.
The company has positions in two premium plays: the Manville, where it produces condensate-rich gas, and the Cardium, where it produces light oil.
But Marino s aid he’s watching climate-change initiatives in Alberta to ensure the fiscal burden remains competitive.
“The reason we can invest is that we have a relatively advanced set of projects in the province,” he said. “If the fiscal environment got worse, we would turn to other places.”
Projects in France, the Netherlands, Germany and the U. S. will also see spending boosts.
Marino said t he company’s capital program is economic even at sub-US$40 oil prices.
“We don’t need the high oil prices that we had in the past,” he said. “If those prices exist again in the future due to supply and demand fundamentals in the world … we would be generating a lot more free cash than we are today.”
The oil market seems to be slowly mending, Marino said. If the OPEC cartel nails down an agreement this month to cut production, balance could return faster. If not, it will happen but take longer, he said.
As a top producer in EU jurisdictions, Vermilion expects to benefit from the CETA agreement signed on the weekend between Canada and the European Union.
While there are no company s pecifi c benefits, Marino said the agreement supports both economies.
“These agreement can only help Canadian companies’ profiles and therefore it will help ours,” Marino said.